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Paying the premium

Last week research from Money Marketing found that over half of all funds with annual management charges of 1.75 per cent or more have underperformed in the past three years.

In a difficult market where all things investment are under scrutiny, a total of 40 out of 65 funds have failed to beat the difficult market where all things investment are under sceir benchmark, with 26 bottom quartile.

Money Marketing conducted a similar piece of research last year which showed that the number of funds that have offered the elevated charge had reached 80 – with many citing the need for specialist investment processes and research for niche products justifying the extra cost.

However that now appears not to be the case as a number of funds are failing to hit their benchmark, let alone perform.

Some of the bigger funds on the list include the £1.4bn Aberdeen Asia Pacific and £608m Fidelity Moneybuilder global, both of which are third quartile in that time frame.

Another firm, Dalton Strategic Partnership, has three of its opportunities funds – Japan, European and Asia – on the list, despite having an AMC of 2.15 per cent slapped on them.

Kohn Cougar managing director Roddy Kohn says: “With the growth of specialist offerings I would like to hope that this move to 1.75 per cent AMC on funds is not an irreversible trend. It is wholly unjustified and the greatest disincentive to advisers as they understand the effects of costs on a portfolio¹s return.”

Meanwhile, Chelsea Financial Services has revealed its latest Relegation Zone with UK equity income bearing the brunt of the troubles.

Newton higher income headlined the downturn with the £2.8bn fund topping the 100-strong list of underperforming unit trusts.

A total of £21.5bn of assets are now in underperforming funds, with approximately £5bn coming courtesy of seven funds in the UK equity income sector.

Following Newton higher income as the biggest underperforming fund on the 100-plus list of unit trusts is the £2671m Scottish Widows corporate bond fund, while the £898m HSBC growth and income fund is in third.

Chelsea Financial Services managing director Darius McDermott says: “This is the first time that UK equity income has been so prevalent in our list and it’s because as a style it has underperformed, with banks and housebuilders being decimated. Newton has played a major role in this with the fund hit hard with losses, while it has also begun to see outflows.”


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